Designing Contracts for Payments for Ecosystem Services Programs: Insights from a Stated Preference Survey

Abstract

Uptake of payments for ecosystem services (PES) programs is often less than desired, leading policymakers to experiment with alternative contract designs aimed at increasing participation. We use data from a discrete choice experiment within a farmland owner survey to explore how stated preference (SP) studies could inform those efforts. We examine program design attributes for long-term conservation practices such as riparian buffers using a standard discrete choice model and hurdle models, where the latter considers serial nonparticipation that occurs commonly in SP studies involving PES programs. All model specifications indicate that both the one-time bonus and annual recurring payments provide economically meaningful incentives for participation. The marginal rate of substitution between these two payments reveals a strong preference for receiving payments upfront, suggesting that landowners discount future payments at high rates. Controlling for serial nonparticipation makes little difference in estimates of predicted uptake rates or tradeoffs between upfront and recurring annual payments. Our policy simulations varying the one-time bonus and annual recurring payments, while holding total payments constant in present values, indicate that uptake can be increased by frontloading payments. Overall, our analysis indicates that SP methods can help design more effective PES contracts.

Keywords: payments for ecosystem services, discrete choice experiment, serial nonparticipation, discount rate, program uptake

JEL Classification: Q18, Q53, Q52, Q58, Q25